The UK’s growing demand for rental properties means that property continues to be a good investment for UK landlords, even with house price growth slowing. However, with the tax and regulation changes for landlords over the past few years, many are moving from ‘vanilla’ buy-to-let to look at other avenues in order to boost their yields. This includes Houses of Multiple Occupancies (HMO) and Student Accommodation.
Savvy landlords will be doing their homework and looking at the best places to find these higher yields. As property prices in the North are typically lower than the South, especially in London, landlords are offered the chance to make better returns. However, as many investors may look to the North to seek better yields, house prices in this region are rising. Over the last year, both Birmingham and Liverpool witnessed some of the largest increases in house prices across the country**.
Of course, landlords thinking about student accommodation must be aware of the dynamics of this type of buy-to-let. Renting to students can mean high tenant turnover which in turn means increased admin and costs involved with new occupants, usually every year. In many cases, this high tenant turnover comes hand-in-hand with potentially less care for the maintenance of the property – assuming students today are anything like I was. Costs therefore could become prohibitive unless regular checks are made.
For landlords looking to purchase a property intended to be an HMO, they will need to be aware of the new licensing rules. Previously, these licensing rules applied to properties with three or morestoreys that are occupied by five or more people from two or more households. However, now a license is required from HMOs with five or more occupiers. This makes roughly 170,000*** properties, previously not affected by the rules, now needing licenses. Clients should be using their brokers to provide more clarity on what this means for them.
Indeed, with this new regulation brokers need to be prepared for clients to be looking into HMOs or student accommodation as they seek better returns. Therefore, brokers pairing up with lenders who have the specialist knowledge will provide their clients with the best solutions.
We recently worked with a broker partner whose client put forward a case managing a buy-to-let portfolio in and around Liverpool and was seeking finance for the purchase of a HMO property. Their desired amount was just over £110,000 at 80% LTV. The property was in good condition with a high Debt-Service Coverage Ratio (DSCR). Even with this high LTV ratio, Kent Reliance was able to accommodate the client as we can take HMO cases with up to 85% LTV. When reviewing the case, we took many things into account including the existing relationship with the client, the condition of the property and the DSCR. Therefore, we were able to approve the loan and were happy to be able to support an existing customer.
At Kent Reliance and InterBay Commercial, we have a range of BDMs working across the country who are happy to arrange a visit or call to help brokers find the best regional solutions for their clients and support them in times of changing rules and legalisation.
*English Housing Survey, Ministry of Housing, Communities & Local Government, July 2018
** Hometrack UK Cities House Price Index
*** Residential Landlords Association
Adrian Moloney is sales director at OneSavings Bank